The Carbon Market

Excerpts from FT.com : Europe hopes to avert a false economy in carbon

1. What is EU Carbon Trading Scheme?

The scheme works by issuing companies in some energy-intensive sectors with tradeable permits for each tonne of carbon dioxide they are allowed to produce. If they want to emit more, they must buy permits from companies with spares.

The EU’s emissions trading scheme is just part of the worldwide trading system envisaged under the Kyoto protocol. The clean development mechanism, a key component of the treaty, encourages the introduction of low-carbon technology in poor countries by allowing rich nations to offset the emissions thus avoided against their own Kyoto targets.

2. How are some companies making money from this scheme?

Enterprising companies are embarking on low-carbon projects in developing countries in the hope of generating credits, which they will then be able to sell to the highest bidder on the international carbon markets. Lafarge, the cement company, for example has built wind turbines on a cement plant in Morocco.

3. Will America go the way of Europe?

Several American states are working on plans to limit their own greenhouse gas emissions and could embrace emissions trading. The appointment of Hank Paulson, who has strong environmentalist credentials, as Treasury secretary has also heartened the treaty’s supporters.

4. What is the future of Carbon Market?

Businesses will have to prepare seriously for the effects of the carbon economy which, trends suggest, will only grow stronger over the next few years. According to a World Bank report, countries traded more than $10bn of the gas with one another last year and there are predictions that carbon worth $25bn-$30bn will be traded this year.

As the 2012 deadline to meet Kyoto targets approaches, more and more countries have a vested interest in entrenching the trading system. If it continues on its current course, it could even offer the best hope the world has of limiting the ravages of climate change.